On August 22nd, the second phase of the CARD Act was enacted. Unlike the first set of new credit card rules that took effect in February, the newest credit card rules won’t have a huge impact on the wallets of most people. One rule limiting penalty fees will help those who accidentally (or habitually) make late payments. However, a key rule that requires credit card companies to re-evaluate interest rate increases and lower interest rates on customers who qualify is extremely vague and likely to do more harm than good to consumers.
There are two key problems with the interest rate re-evaluation rule. First off, it is absurdly vague. Credit card companies must review all rate increases that have occurred since January of 2009 every six months and, if appropriate, reduce interest rates. On the surface, this sounds great. However, credit card companies can use their own methods to determine if an interest rate should be reduced. Thus, cardholders’ will likely hear that “market conditions” warrant that their interest rates stay the same, just as “market conditions” were cited to millions of customers when rates were increased prior to the CARD Act.
Essentially, the credit card companies control how rate reductions are determined and, in my opinion, few will find ample reason to reduce rates. Additionally, many rate increases occurred when credit card companies changed the way individual cards were priced. For example, your interest rate may have been calculated based on a formula such as Prime+2.99% before a rate increase. Many credit card companies simply changed the formula to Prime+4.99% or Prime+ 8.99%. If your rate was increased because of an underlying change in how your card’s interest rate was calculated, you’re account probably doesn’t stand a chance of scoring a rate reduction, since it was the credit card’s rate, and not your rate, that was changed.
The second problem that may arise from this rule is a change in consumer expectations. With the promise of a possible rate reduction down the road, consumers might stick with their current high rate credit cards instead of switching to low rate 0% balance transfer credit cards. Unfortunately, even consumers that qualify for rate decreases won’t likely see very major reductions. Consequently, they may end up paying much more in interest than they would have if they had taken proactive steps to reduce their rates.
Thus, while the new rules on penalty fees will help consumers, the rule requiring the re-evaluation of rate increases may actually cause many people to pay more in interest while they wait for their credit card companies to take action. While it is possible that more rules may be created to insure that credit card companies handle rate reductions fairly, the chances of this occurring in the next year are limited.
Consumers hoping for a rate decrease should take action instead of waiting. Call your credit card company and see if they will reduce your rates now. If they won’t, find a 0% APR balance transfer credit card and move your debt to a new card with a low rate so you can start saving money on interest now.
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August 29th, 2010 at 12:58 pm
THIS INFORMATION IS USEFUL, BECAUSE I OPENED MY CREDIT CARD BILL AND SAW A $40 MEMBER FEE CHARGED TO MY ACCOUNT
AND MY APR IS 9.96 I AM GOING TO CONTACT THEM TO GET A REQUEST FOR A LOWER RATE OR I AM GOING TO SWITCH FROM CAPITAL ONE, WHO HAS GOTTEN A FORTUNE OFF ME in INTERSTS FEES. THE RULES NEED TO BE MORE IN CONSUMERS FAVOR WHO ALWAYS PAY THEIR BILL ON TIME BUT CANNOT GET THEIR BALANCES LOWERED FAST ENOUGH THE KEY IS TO STOP USING
CREDIT CARDS WHENEVER POSSIBLE, USE YOUR OWN MONEY.